ELENA ZAEVA: PERFORMANCE TARGETS FOR NATURAL MONOPOLIES MUST BE DEVISED

A Working Group at the “National Workshop on Tariff Regulation in 2019 and the goals of regulators for 2020" analyzed an effect of methods of defining the standard profit of operational and investment activities of natural monopolies in the communications sector

Discussing the new approach, Head of FAS Department for Regulating Communications and Information Technologies Elena Zaeva pointed out:

“The approach suggested for defining the standard profit can enhance performance of natural monopolies and its investment development. At the same time, FAS as a regulator must ensure efficient application of the method, observe the balance of interest between market participants, and be confident that the used approach meets the interest of all interacting parties”.

Deputy Head of FAS Department for Regulating Communications and Information Technologies, Olga Klimova, who moderated the event, described how standard profit is defined, and outlined the goals of regulators for 2020.

She pointed out that state tariff regulation use, in particular, economically justified costs. Under this approach, tariff should compensate economically justified costs and recoup standard profit, defined based on use and implements investment programmes.

Olga Klimova explained that “in current tariff-setting, the necessary gross revenue includes standard profit, calculated based on the actual indicators formed as a results of communications operators’ performance. Which in some cases leads to the situation that the standard profit cannot fully support extended reproduction of fixed assets depending on a corporate economic policy”.

She added: “The actual profit can be below the value, approved in accord with the established procedure that is necessary for pursuing the investment programme”.

To determine the size of standard profit required to fulfill investment programmes and at the same time do not exceed the optimum within the necessary gross revenue, FAS Department for Regulating Communications devised approaches to define the optimum, justified standard profit.

“The results of solving the issue of accounting for standard profit in the necessary gross revenue enabling to build up the optimal structure of the ratio of own and borrowed funds, increase the share of own funds to implement investment programmes, and, accordingly, reduce the share of paid, borrowed funds, which, in its turn, will have an effect on the size of tariffs”, concluded Olga Klimova.

Based on the outcome of the Round Table, a decision was made to devise performance targets for holders of natural monopolies.

“Reaching the targets is a condition for accounting standard profit in the tariffs, designed to improve financial standing and ensure proper quality of communications services”, commented Elena Zaeva.